Feeley v. NHAOCG, LLC

Delaware Court of Chancery · 2012 · Corporations

62 A.3d 649 (Del. Ch. 2012)

Updated August 22, 2026

CorporationsLLCsfiduciary dutiesarbitrationoperating agreementsDelaware LLC Actdefault fiduciary dutiesSection 18-1101(c)

Facts

Oculus was formed as a Delaware LLC with two 50% members: AK-Feel, the managing member controlled by Feeley, and NHA, the non-managing member. NHA alleged that Feeley mishandled the Gatherings real estate transaction by tendering too small a deposit, causing the deal to fail and losses to Oculus, and later diverted student-housing opportunities to entities for his own benefit. NHA also claimed AK-Feel failed to provide information, failed to submit a 2012 budget, and that NHA had a right after two years to cause Oculus to cease business operations. Feeley's employment agreement as President and CEO of Oculus contained a mandatory arbitration provision.

Issue

Whether NHA's counterclaims against AK-Feel and Feeley had to be arbitrated or dismissed, including whether Delaware LLC managers owe default fiduciary duties absent clear contractual elimination, whether the operating agreement here displaced those duties, whether a controller of an LLC managing member could face fiduciary liability, and whether NHA had a unilateral contractual right to cause Oculus to cease business operations.

Rule

Under Delaware law, managers and managing members of an LLC owe default fiduciary duties unless the LLC agreement plainly and unambiguously restricts or eliminates them. A clause that merely limits or eliminates liability for certain breaches under 6 Del. C. § 18-1101(e) is an exculpation provision, not an elimination of duties under § 18-1101(c). Arbitration is not required for claims that are independent of the agreement containing the arbitration clause and could be brought without relying on that agreement. Under USACafes and its progeny, the controller of an entity fiduciary may be liable at least for loyalty-based fiduciary breaches, but that doctrine has not been extended to duty-of-care claims.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Harbor Slate Ventures, LLC is a Delaware LLC that owns warehouse projects in Ohio. Its operating agreement names Riverbend Manager, LLC as managing member but says nothing expressly about fiduciary duties; minority member Lena Ortiz sues after Riverbend allegedly approves a transaction benefiting itself at Harbor Slate’s expense.

Under the lead opinion’s approach, which is the best statement about Riverbend’s duties?

Explanation. The majority held that managers and managing members of a Delaware LLC owe default fiduciary duties as a baseline. Those duties remain unless the LLC agreement clearly displaces them. The opinion rejected the argument that an LLC manager owes only whatever duties are expressly written into the agreement.